It made sense in the 1930s for the government to subsidize credit unions by letting them off the hook from paying federal income taxes. Back then, they helped at-risk communities survive hard times by expanding access to credit to those who needed it most. Large credit unions have long abandoned that mission, and today are seeking membership growth—by targeting rich people.
As the regulatory regime for credit unions becomes more relaxed, complex credit unions have become indistinguishable from community banks. Their ability to raise investor capital with 30-year horizons facilitates growth that goes well beyond credit unions’ original purpose.
To borrow from the great line purportedly uttered by late Sen. Everett Dirksen about spending in Washington – “a billion here, a billion there, and pretty soon you’re talking about real money” – credit unions are taking huge advantage of their regulator’s relaxed position on the highly profitable not-for-profits by raising hundreds of millions of dollars a quarter from hedge funds and other for-profit investors in the form of subordinated debt.
Credit union executives will deploy to the Washington, D.C. Convention Center this week to lobby policymakers for additional industry expansion and bask in the success and growth of their industry – growth and success fueled virtually entirely by the largest credit unions, oftentimes at the expense of, or on the backs of, small credit unions.
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